CS Executive Company Law Flashcards

24 sample cards from the Company Law deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the doctrine of ultra vires in company law?

   Any act done by a company beyond the powers/objects stated in its Memorandum is ultra vires (beyond powers) and is void ab initio. It cannot be ratified even by unanimous consent of shareholders. (Ashbury Railway Carriage v. Riche.)

2. What are the Articles of Association (AOA)?

   The document containing the rules and regulations for the internal management and administration of the company, governing the relationship between the company and its members [Section 2(5)]. They are subordinate to the MOA.

3. Distinguish between the Memorandum and the Articles of Association.

   MOA defines the objects and powers and governs the company's relationship with outsiders; it is the supreme/charter document. AOA contains internal management rules and governs members inter se; it is subordinate to the MOA and must not conflict with it or the Act.

4. What are 'Table F', and the model articles under the Companies Act, 2013?

   Schedule I provides model forms of articles: Table F (company limited by shares), Table G (company limited by guarantee with share capital), Table H (limited by guarantee without share capital), Table I (unlimited with share capital), Table J (unlimited without share capital).

5. What is the doctrine of constructive notice?

   It presumes that every person dealing with a company has notice of, and has read, the company's public documents (MOA and AOA) registered with the Registrar, and is deemed to know their contents whether or not actually read.

6. What is the doctrine of indoor management (Turquand Rule)?

   Outsiders dealing with a company in good faith are entitled to assume that the internal procedures/formalities of the company have been duly complied with. They need not enquire into internal regularity. Established in Royal British Bank v. Turquand.

7. State the procedure to alter the Name Clause of the Memorandum.

   Pass a special resolution and obtain the prior approval of the Central Government (Registrar) in writing. Approval is not required when the change involves only addition/deletion of the word 'Private'. A fresh Certificate of Incorporation is issued.

8. State the procedure for shifting the registered office from one State to another.

   Requires a special resolution and confirmation/approval of the Central Government (Regional Director) under Section 13. The altered MOA must be filed with the Registrars of both States.

9. How is the Objects Clause of the Memorandum altered?

   By passing a special resolution and filing it with the Registrar [Section 13]. Where the company has raised money from the public through a prospectus and has unutilised funds, additional safeguards (dissenters' exit and special resolution via postal ballot) apply.

10. Can the Articles of Association be altered, and how?

    Yes, by passing a special resolution [Section 14]. The alteration must not be inconsistent with the MOA or the Act, must be bona fide for the benefit of the company, and cannot increase a member's liability without written consent.

11. What is meant by 'entrenchment provisions' in the Articles (Section 5)?

    Provisions in the AOA that make specified clauses more difficult to alter than by a special resolution (requiring more restrictive conditions or procedures). They can be introduced on formation, or later by all members' agreement (private company) or special resolution (public company).

12. What is 'share capital' and name its main types/categories.

    Share capital is the capital raised by a company through issue of shares. Categories: Authorised (Nominal/Registered) capital, Issued capital, Subscribed capital, Called-up capital, Paid-up capital, and Reserve capital.

13. Distinguish between authorised capital and paid-up capital.

    Authorised (nominal) capital is the maximum amount of share capital a company is authorised to issue as stated in the Capital Clause of the MOA. Paid-up capital is the amount actually paid by shareholders on the shares subscribed and called up.

14. Distinguish between 'called-up capital' and 'reserve capital'.

    Called-up capital is the part of the subscribed capital that the company has demanded shareholders to pay. Reserve capital is the part of uncalled capital that a company resolves by special resolution to call up only in the event of winding up.

15. Differentiate between equity shares and preference shares.

    Preference shares carry a preferential right to a fixed dividend and to repayment of capital on winding up, but usually no voting rights. Equity shares get dividend after preference shareholders, carry full voting rights, and bear the main risk/reward of the business.

16. What are the different types of preference shares?

    Cumulative vs. Non-cumulative (re unpaid dividends carrying forward), Participating vs. Non-participating (re surplus profits), Convertible vs. Non-convertible (re conversion into equity), and Redeemable vs. Irredeemable. Under the 2013 Act preference shares must be redeemable within 20 years (30 years for infrastructure projects).

17. What are 'sweat equity shares' under Section 2(88)?

    Equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, for providing know-how, intellectual property rights, or value additions.

18. What is the difference between 'shares issued at par', 'at a premium', and 'at a discount'?

    At par = issued at face value. At a premium = issued above face value, with the excess credited to the Securities Premium Account (Section 52). At a discount = issued below face value; this is generally prohibited under Section 53, except sweat equity shares.

19. What is meant by issue of shares by way of a 'Rights Issue' under Section 62?

    Further shares are offered first to existing equity shareholders in proportion to their existing shareholding (pre-emptive right), within a notice period of 15-30 days, with a right to renounce the offer in favour of another person.

20. What is a 'bonus issue' of shares?

    Issue of free fully paid-up shares to existing members out of free reserves, securities premium, or capital redemption reserve, in proportion to their holdings [Section 63]. It capitalises reserves and does not involve any inflow of cash.

21. What is a 'private placement' of shares under Section 42?

    An offer or invitation to subscribe to securities made to a select group of identified persons (not more than 200 in a financial year, excluding QIBs and ESOP) through a private placement offer letter, not by a public offer.

22. Define a 'debenture' under Section 2(30) of the Companies Act, 2013.

    A debenture includes debenture stock, bonds, or any other instrument of a company evidencing a debt, whether constituting a charge on the company's assets or not. It acknowledges a loan to the company carrying a fixed rate of interest.

23. Distinguish between shares and debentures.

    A shareholder is an owner/member of the company; a debenture-holder is a creditor. Shares earn dividend (out of profits, variable); debentures earn interest (fixed, payable even in losses). Shareholders have voting rights; debenture-holders do not. On winding up, debentures are repaid before share capital.

24. What are the main types/classifications of debentures?

    By security: secured (mortgage) vs. unsecured (naked); by convertibility: convertible vs. non-convertible; by tenure: redeemable vs. irredeemable (perpetual); by registration: registered vs. bearer; and by priority: first vs. second debentures.

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